Direct Support to Small Scale Farmers Reduces Poverty – What Zambia Is Doing Right
Over half of Zambia’s population lived below the national poverty line in 2015. In rural areas, where 89% of households are engaged in agriculture, the poverty rate was even higher, at 77% of the population.
The government runs several programmes of financial support for farmers. Some provide agricultural inputs directly to households.
Agricultural input subsidies can encourage adoption of modern inputs like fertilisers, improved seeds or agro-chemicals, by making them more affordable. Input subsidies can be price-based, packages of inputs or input vouchers provided at a subsidised cost to eligible farmers.
There is a vast body of research showing that these policies can raise farm outputs and incomes. But there are also reservations concerning their effectiveness. Low and middle-income countries, including in Africa, also have other transfer policies that may be more effective in reaching the poor. They can also lead to improved agricultural production, as is the case with social cash transfer programmes.
Agricultural input subsidies represent a transfer of income to the targeted households. But eligibility criteria – such as requiring minimum farm sizes or membership of farming cooperatives – may reduce the likelihood of such support reaching the poorest farmers. Price-based subsidies offer the greatest benefit to people who farm on a bigger scale.
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Tax instruments are needed to fund inputs provided to farmers and cash transfers to households. But they, too, have impacts on poverty and inequality. That is why a comprehensive assessment of agricultural policies as a part of the broader tax-benefit system is needed.
Our study
To fill this gap, we used tax-benefit microsimulation to assess the distributional impacts of agricultural policies in Zambia. The tax-benefit microsimulation model for Zambia, MicroZAMOD, enables policymakers and researchers to analyse and compare the effects of different benefit policy scenarios on poverty, inequality and government revenues. The earlier version of the model was expanded by us to better capture the main impacts of agricultural policies on household incomes.
The results show that Zambian agricultural policies reduce the share of households whose consumption falls below the poverty line by 3-5 percentage points. Although this does not solves the poverty problem in the country, it is still a sizeable effect among developing countries. The magnitude of poverty reduction depends on whether only the policies’ direct impacts are considered, or also behavioural impacts that lead to changes in agricultural production. We also examined whether it was possible to reach similar poverty reduction at a lower cost to the government.
Farming interventions in Zambia
The Zambian government has three key agricultural programmes:
Farmer Input Support Programme
Food Security Pack
Food Reserve Agency purchase programme.
The Farmer Input Subsidy Programme, introduced in 2002, represents farm input subsidies, or subsidised input vouchers or packs. It provides e-vouchers or input packs through direct distribution. This is subject to the farmer’s own contribution. The aim is to enhance smallholder farmers’ incomes, and food security at the household and national levels.
The Food Security Pack, established in 2000, is a social protection programme aimed at vulnerable, but viable, smallholder farmers. It consists of a package of inputs and a part of the crop is recovered by the community as a pay back.
The Food Reserve Agency buys farmers’ produce at set prices. This provides market access and stabilises prices. Its core aim is to manage strategic food reserves.
There have been a number of impact studies of these programmes. But, until now, there has been no systematic assessment of the agricultural policies as a part of the entire tax-benefit system in Zambia.
